METALS-Shanghai Zinc Slides, Others down in Mass Liquidation

SINGAPORE, June 2 -- Shanghai zinc futures fell by their 5 percent limit on Wednesday, and other metals also dropped as day traders in China rushed to exit positions ahead of the midday break after equity markets gave up gains.

Benchmark Shanghai zinc SZNc3 dropped 795 yuan from Tuesday's settlement to 15,025 yuan per tonne, while copper SCFc3 dropped almost 2 percent to 53,180 yuan by midday.

"It's hard to identify a single trigger. This to me looks like a perfect storm. We had a lot of volume going through early on, then before the break, equity markets started to turn," a trader in Shanghai said, noting nearly 3 million tonnes of zinc or 20 percent of global output, traded in the morning session.

"There was a rush to the door to sell before the midday break. Zinc hit its limit and others also fell, dragging LME with them."

The Shanghai Composite Index .SSEC turned a near one percent rally into a 1.6 percent loss, and Dow Jones futures DJc1, up half a percent early in the day fell back to fair value, sparking a wave of selling across other markets.

Peng Qiang, an analyst at COFCO Futures said: "China's industrial growth is definitely not as good as in March and April. There's little bullish news from the policy front either. Industrial activity is unlikely to expand much in June. A 10 percent downward correction is possible for copper."

Three-month copper on the London Metal Exchange CMCU3 fell almost $100 in the space of 30 minutes and at 0410 GMT was quoted at $6,660, $90 down from the previous close.

"The environment doesn't look promising. We are facing a number of headwinds. Slowing China growth rates, weakness in property markets, a slumping stock market and European debt worries, to name just a few," MF Global analyst Edward Meir said.

The rate of expansion of China's factory output eased last month as gradual policy tightening took a toll on new orders, suggesting to some economists that Beijing will take its time before nudging interest rates higher.

Technically, copper was seen sliding to $6,600, Reuters analyst Wang Tao said, noting LME copper had returned to a bearish trend and will fall to $6,607 a tonne. After an ascending trend line was broken at $6,866.00 on the hourly chart, copper fell sharply and failed to recover.

The outlook for aluminium was also downbeat, he said, suggesting a drop to $1,920, as a bearish triangle has been breached at the lower side.

LME aluminium CMAL3 fell 1 percent to $1,974.